I like this model because unlikeConference Board’s index of leading indicators, the USA TODAY/IHS Global Insight Economic Outlook Index includes only “forward-looking” indicators that predicts future economic activity at least several months in the future (i.e. indicators of current activity are excluded). The Index concentrates information from 11 “forward-looking” indicators into one weighted composite indicator. The list includes a mix of economic and financial “forward-looking” indicators that have a strong correlation with future economic activity. As a group they forecast economic growth and are sensitive to signs of stress in the economy.

The December update of Index indicates the economy is recovering strongly from the recession.

According to the web site, the last months of 2009 are likely to post strong gains in real gross domestic product. The Index forecasts slightly slower growth in the first half of 2010 as the inventory cycle turns, credit conditions remain tight, and consumer spending loses the support of government stimulus programs.

Eight of the eleven leading indicators in the Index were positive contributors in December, up from five in November. Positive indicators include hours worked, building permits, real capital goods orders, stock prices, ISM export orders, the yield curve, and light-vehicle sales, all of which increased.

The Index web site includes an interactive chart that forecasts values for real GDP growth. It includes actual values back to 2001.

Commercial Defaults Pose Risks to Small Banks (from Bloomberg.com)

According to an article at Bloomberg.com, losses on commercial real estate loans pose the biggest risk to U.S. banks this year, troubling smaller lenders while unlikely to threaten the entire financial system. Regional banks are almost four times more concentrated in commercial property loans than the nation’s biggest lenders.

The default rate on commercial mortgages held by U.S. banks more than doubled to 3.4 percent in the third quarter, according to Real Estate Econometrics LLC, a property research firm in New York. Default rates in the first three quarters of 2009 have been the highest since 1993, according to the firm.

The failure of loans backing malls, hotels and apartments may impede the U.S. recovery as small- and medium-sized banks reduce lending and conserve capital to absorb losses. Tight credit could slow the cycle of investment and hiring that is critical for sustained growth according to the article.

The U.S. Census Bureauannounced in December that the U.S. population grew by 2.7 million in 2009, an annual growth rate of 0.86%. Every region of the country grew, with the West and South experiencing the strongest growth, at 1.23% and 1.16%, respectively.

Texas gained more people than any other state between July 1, 2008, and July 1, 2009 (478,000), followed by California (381,000), North Carolina (134,000), Georgia (131,000) and Florida (114,000), according to the latest U.S. Census Bureau estimates.

California remained the most populous state, with a July 1, 2009, population of 37 million. Rounding out the top five states were Texas (24.8 million), New York (19.5 million), Florida (18.5 million) and Illinois (12.9 million).

Wyoming showed the largest percentage growth: its population climbed 2.12 percent to 544,270 between July 1, 2008, and July 1, 2009. Utah was next largest, growing 2.10 percent to 2.8 million. Texas ranked third, as its population climbed 1.97 percent to 24.8 million, with Colorado next (1.81 percent to 5 million).

The only three states to lose population over the period were Michigan (-0.33 percent), Maine (-0.11 percent) and Rhode Island (-0.03 percent). The latter two states had small population changes.

The inexorable demand that this growth creates, for homes, cars, retail spending, etc., is an important engine in our economy, and powerfully differentiates the U.S. economy from many other developed nations that are experiencing, or will experience, population declines.

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